Jeff Wallace,
Retirement Plan & Executive Benefits Consultant
Lockton Retirement Services (858) 587-3145
JWALLACE@LOCKTON.COM

Jeff Wallace, Retirement Plan & Executive Benefits Consultant Lockton Retirement Services (858) 587-3145 JWALLACE@LOCKTON.COM

Are you concerned that only 30% of your workforce can afford to retire at age 65? If you are like most business leaders, you hope your employees will take advantage of the 401(k) plan you’ve made available but don’t feel you need to aggressively encourage participation. Here is why you should.

Prepare For A Much Older Workforce

Approximately 70% of Baby Boomers today are not able to retire. Even more disconcerting, over 40% of boomers admit they have yet to save anything for retirement. Delaying or forgoing retirement will significantly impact the lives of these individuals. However, what’s largely ignored is what this means for employers.

Clearly there are advantages to having an experienced workforce. Less turnover means lower recruiting and training costs, and long-time workers can be great stewards of your company’s culture: they’ve been around long enough to embrace your company’s values, and provide a strong sense of continuity both internally and externally. They often maintain the long-term relationships with clients and suppliers that are critical to your company’s success.

However, an older workforce means higher payroll costs, as long-term employees are often paid considerably more than the new hires who would normally fill their roles upon retirement. Healthcare premiums also tend to be higher since older workers cost more to insure than younger workers. And various forms of business insurance, such as workers’ compensation, may be more expensive. Older workers tend to be less prone to on-the-job injuries, but when they are hurt, the costs are typically much higher.

Another area to consider is the attrition of qualified talent. As older workers delay or forgo retiring, they are also delaying younger employees from advancing in their careers. These employees will often pursue better opportunities elsewhere, leaving you with few qualified replacements to fill positions that become available. The resulting lack of managerial “bench strength” could spell disaster for your company.

Perhaps the biggest concern is related to productivity. How productive is any worker—regardless of age—who just shows up for a paycheck? Now imagine dozens of workers who simply can’t afford to retire, and have to continue working into their 70s to make ends meet. There will certainly be superstars among this group who continue to bring their best everyday. But those people will likely be the exception. Most will do enough to remain employed to pay the bills; they are not building a career. That’s a vital distinction, and one with potentially significant costs to you.

Evaluating Your Current Workforce

So what can you do? Start by taking a close look at your workforce. Resources are available to help evaluate your current workforce and determine the level of their “retirement readiness,” as well as the potential liabilities associated with those who lack sufficient retirement savings. Then, identify specific groups to target for engagement: the employees who have sufficient time to save enough for a comfortable retirement, and those who do not.

Your retirement plan advisor can craft outreach programs to educate the first group and encourage 401(k) plan participation. For the second group, you will likely need to evaluate each situation individually. How you approach a 70-year-old truck driver will likely be different from how you approach a 70-year-old executive assistant. While both represent relatively high compensation and benefit costs, the driver may pose a more immediate liability risk to your business. In that situation, you may want to consider offering a financial incentive package to help transition the driver into retirement.

With the demise of corporate pension plans, one leg of the “three-legged-stool” of retirement savings disappeared. The other two legs, personal savings and Social Security, still remain, but it’s clear that the former has not replaced private pension plans, and the latter is facing an uncertain future. The implications of this for employers are not yet entirely clear.

What is clear, however, is that CEOs and CFOs should take a keen interest in the effectiveness of their 401(k) plans. Are the plans designed in a way that support your human capital strategy? Do your plans have specific goals, and are they meeting those goals? Helping employees accumulate sufficient retirement savings isn’t just a paternalistic endeavor; it is vital to sustaining your company’s growth and profitability.

Jeff Wallace advises middle-market employers on the structuring, funding, and governance of corporate retirement plans and executive benefit programs.